2012-08-10 WikiLeaks: Paraguay's "Quasi-Coup" Has the Smell of Oil

In the wake of Paraguay's suspicious impeachment of President Fernando Lugo, which observers have likened to a kind of "quasi-coup," some may wonder whether underhanded corporate forces may have played a role in the political crisis. Such suspicions were heightened recently when the new de facto regime led by Federico Franco, Lugo's former conservative Vice President, inked a deal with Texas-based PetroVictory/Crescent Global Oil to open up the remote Chaco region to petroleum exploration. Supporters of Lugo's highly dubious ouster claim that Crescent could help to ease Paraguay's dependence on foreign oil. Richard González, Crescent's CEO, announced that the company would invest $10 million in the Chaco and start exploratory drilling within the next few months.

To be sure, there's no proof or "smoking gun" that Crescent had anything to do with the political shakeup in Paraguay, yet the timing of the deal raises eyebrows. According to secret U.S. diplomatic correspondence released by whistle-blowing outfit WikiLeaks, Crescent had fallen out of favor with the previous Lugo administration. What is more, U.S. diplomats, who were concerned about Lugo's leftist leanings and links to Hugo Chávez of Venezuela, pressed Crescent's case. Fundamentally, the Crescent/Chaco affair raises real questions about what the U.S. is up to in Chaco, a vast, arid and inhospitable swath of territory. The region spans much of Paraguay, Bolivia and northern Argentina, and the area has been much fought over and coveted by nations in the vicinity [for a discussion of the Chaco, its history and wider U.S. geostrategic concerns see my earlier al-Jazeera column here].

Rival Interests

In many ways, recent developments in Paraguay hark back to the Chaco's shadowy history of political intrigue. In 2007, prior to Lugo's election, Asunción signed an energy agreement with Venezuelan state oil company PdVSA. Under the initiative, Hugo Chávez agreed to invest a whopping $600 million to modernize Paraguayan state company Petropar's oil refinery. In addition, Venezuela provided 30% of Paraguay's oil supply, assistance which was sorely needed as the Southern Cone nation was totally dependent on foreign sources of petroleum.

Provoking Washington yet further, Asunción signed a food-for-oil agreement with Venezuela. Under the initiative, Paraguay exported beef, soy, maize, rice and milk in return for Venezuelan diesel and oil-related products. Perhaps more importantly, Venezuela also offered to help Paraguay prospect for gas in the country's western Chaco region. Needless to say, the anti-Chávez business community in Asunción, as well as the conservative Colorado Party and media were none too pleased by Venezuela's offer of energy assistance.

In Washington meanwhile, Secretary of State Condoleezza Rice took notice, asking her subordinates what the likely impact of "potentially large gas and oil deposits in the Chaco region" would have upon the Paraguayan economy. The U.S. Embassy in Asunción, concerned that Chávez might use his country's oil largesse to exert greater geopolitical control over the Southern Cone, started to investigate Venezuelan activities in Paraguay.

U.S. oil companies based in Asunción such as Exxon-Mobil were also getting jittery. For years, the corporation had operated gas stations in Paraguay and received a large amount of oil from Petropar. Speaking with U.S. Commerce Secretary Carlos Gutiérrez, Exxon's general manager "expressed concern regarding Petropar's intentions to upgrade its small local refinery with PDVSA's support, saying the project makes little economic sense." On the eve of Lugo's inauguration, the Exxon man added that "insecurities in the judicial system undermine Paraguay's capacity to attract foreign investment."

Washington's Spying on Lugo

By late 2007, the presidential campaign was ramping up and Lugo looked pretty firm in the polls. A former Bishop who had praised Hugo Chávez and espoused progressive social ideas, Lugo discombobulated Rice at the State Department who ordered her subordinates to spy on the presidential aspirant. In Asunción meanwhile, U.S. diplomats sought out and interviewed one of Lugo's advisers who disclosed that Chávez had already approached the Colorado opposition in an effort to spur the creation of a joint company called PdVSA Paraguay.

In April, 2008, Lugo was elected and Washington's headache became more acute with the realization that South America's leftist tide might sweep even further and become truly consolidated. In Caracas, Chávez met with Lugo and remarked "the Paraguayan people can be certain that starting now, Venezuela will guarantee the supply of oil to a fellow country...Paraguay won't lack one drop of oil." Hoping to deepen ties, Chávez urged Paraguay to form a joint oil venture and to join the left-leaning Bolivarian Alliance of the Americas, known by the Spanish acronym ALBA.

Crescent Touches Down in Paraguay

By 2008, however, Venezuela wasn't the only aspiring player in Paraguay, with U.S. oil company Petro-Victory/Crescent also hoping to strike it big. Through their Paraguayan subsidiaries, Crescent and Petro-Victory prospected for oil in two concessions in the western Chaco near the Argentine border, known as the Pirity bloc, and within another concession in the so-called Alto Paraná bloc to the east of Asunción.

According to a June, 2009 WikiLeaks cable, Crescent CEO González met personally with Lugo to discuss the possibility of oil exploration. Feeling optimistic, the firm invited "select companies to join a major exploration venture in its wholly owned...Pirity Block in Paraguay...the terrain is similar to West Texas...drilling is expected to be straightforward."

Despite such rosy prognostications, Crescent soon ran into difficulties with the new Lugo administration. Paraguayan Minister of Public Works and Administration Emilio Boungermini, a Crescent detractor, argued that the company ought to abandon its concessions. According to the official, Crescent had taken advantage of an earlier resolution, which in his view was now unconstitutional and in any case invalidated under a new ministerial decree. Under the first resolution, Crescent would have had the right to explore for oil until May, 2012 but under the new rules of the game this time framework was drastically curtailed.

Boungermini was apparently so exorcised by Crescent that he cryptically informed González that the company should get out of its Alto Paraná concession or "face the consequences." The Crescent CEO suspected that there were "political, ideological, and special interests" at stake in the decision, though it's not clear from the cable what kinds of hidden forces might have been at play. Reportedly, Bourgemini had his own agenda in the Alto Paraná and favored Lan Oil, an oil company from Ecuadoran group Tripetrol which was in turn associated with Russian giant Lukoil.

In August, 2009 Paraguay awarded Crescent's Alto Paraná concession to Lan, setting off howls of protest from the country's conservative media. Right wing paper ABC Color let loose, remarking that the Ministry of Public Works had "abandoned national interests" by awarding concessions to Ecuadoran companies while shunting out American ones. In an apparent reference to Ecuador's alliance with Venezuela, ABC Color added that the Asunción government was aiding and abetting the "Bolivarian advance."

Crescent Mobilizes

Smarting under the decision, Crescent then turned to the U.S. Embassy for assistance and threatened to sue Paraguay for a whopping $2 billion. American diplomats pressed Crescent's case with the Lugo administration, but fretted that the whole imbroglio might upset U.S.-Paraguay relations. Hardly deterred by such a possibility, Crescent "engaged in an escalating legal and public relations battle with the government of Paraguay."

Specifically, the company hired Washington-based law firm Patton, Boggs and Blow which deployed "seasoned lobbyists" like Michael Driver. The latter had apparently attended school with Hillary Clinton "and/or her husband and served as a senior advisor during both their presidential campaigns." Audaciously, Driver went straight up the chain of command, contacting Clinton's Chief of Staff directly on behalf of Crescent.

Meanwhile, company shareholders lobbied Congress to block special trade preferences for Paraguay. In particular, Crescent singled out New York Democratic Congressman and Chair of the House Foreign Affairs Subcommittee on the Western Hemisphere Elliott Engel, who had earlier championed the Lugo government on Capitol Hill. In April, 2009 Engel introduced the U.S.-Paraguay Partnership Act which sought to add Paraguay as an Andean Trade Preference Act (ATPA) beneficiary. Subsequently, ATPA extension for Paraguay languished in Congress though it's unclear whether this had anything to do with surreptitious lobbying [when queried over e-mail concerning the extent and nature of Crescent appeals, Engel's office refused to comment for this article].

Not stopping there, CEO González even lobbied noted Columbia University economist Joseph Stiglitz, who had earlier advised the Lugo administration. Somewhat bizarrely, Crescent apparently hoped that the leftist professor would have a change of heart and "write negatively about Paraguay or help them in any way" [when queried in an e-mail about his knowledge of the Crescent affair, Stiglitz similarly failed to respond].

Paraguayan Lobbying

If that was not enough, Crescent also launched "an aggressive press campaign in Paraguay." According to the U.S. Embassy in Asunción, the effort included "a series of six consecutive articles in Paraguay's most influential newspapers. The articles profiled Crescent as a serious U.S. oil company, described the company's truncated plans to explore its Chaco and Alto Paraná concessions, detailed the Ministry of Public Works irregular and arbitrary handling of the case, and discussed the negative consequences the dispute has for Paraguay's investment climate." Not stopping there, González then took his case all the way to national television. During one talk show, the irate CEO even confronted Boungermini personally and "by most accounts, the televised exchange exposed the bias of the Ministry towards Lan Oil, negatively impacting the Ministry's credibility."

According to the U.S. Embassy in Asunción, Crescent also hired Gustavo de Gásperi, "one of Paraguay's most influential attorneys, to lead its legal team." De Gásperi is listed on the web site of a right wing think tank called the Forum for Strategic Domestic and International Analysis, known by its Spanish acronym FAENI. The group is comprised of politicians, journalists, diplomats and members of the Paraguayan armed forces who are concerned about the threat posed by Evo Morales of Bolivia and Hugo Chávez. De Gásperi himself has penned a number of alarmist columns for ABC Color about Chávez and "undue pressure exerted upon foreigners within new areas that are being opened up in the Chaco.

Venezuela Oil Lobby vs. Paraguayan Right

Despite the intense lobbying, Crescent's problems only continued to mount under the Lugo government. Having already rescinded Crescent's Alto Paraná concession, Asunción now announced that the company had failed to observe Paraguay's relevant hydrocarbons laws, and as a result the government would revoke the firm's prospecting and exploratory rights in the Chaco Pirity bloc. A livid González vented to ABC Color, remarking that the Ministry of Public Works was behaving arbitrarily like Hugo Chávez.

Even as the Crescent imbroglio festered, Chávez conducted his own lobbying efforts. According to U.S. diplomats, Petropar had fallen into serious debt to PdVSA over the years. Perhaps figuring that he might capitalize on the situation, Chavéz suggested that Paraguay should enter into joint oil ventures with Venezuela as a means of paying off its debts. Petropar, however, resisted the idea though the company was "in a vulnerable position because its options for fuel supply and debt refinancing are limited -- sooner or later [the company] will concede to PDVSA's joint venture advances."

Such prospects were truly horrifying to the likes of Lugo's rightist Vice President Federico Franco, who exclaimed that Chávez should not adopt an "imperialist attitude" toward Paraguay and Petropar's debts to Venezuela. In July, 2010, in an incredibly brazen act of insubordination, Franco even sought to overrule Lugo's decree which had declared Crescent's Pirity Bloc concession null and void. Franco had been able to exercise such a daring maneuver as his boss was out of the country on official business. Franco, however, lacked ultimate authority in such matters which pertained to the Ministry of Public Works, and his efforts failed to reinstate the company.

Lingering Questions

Having suffered a setback, it seems as if Crescent would have had difficulty prevailing in Paraguay. A few months later after Franco's attempt to have the company reinstated, the head of Petropar told the media that Russian oil companies had expressed interest in oil exploration and Paraguay sought to attract Brazilian investment, but the official made no mention of American firms or Crescent for that matter. The situation changed dramatically, however, once Lugo was hustled out of the presidency in a kangaroo process and Franco assumed power. Wasting no time, Paraguay's new president approved Crescent's work in the Chaco, and the company now looks poised to spearhead the area's future oil development. Needless to say, Venezuela has been unhappy with the political shakeup in Asunción, and Chávez's PdVSA moved to discontinue oil shipments to Paraguay.

Now that the U.S. has preserved its strategic position in Paraguay and Venezuela has lost influence, it's time to step back and sort out what actually happened here. To be sure Crescent was a beneficiary of Paraguay's regime change, and the company also lobbied against Lugo both internationally and in country. That doesn't mean, however, that the company was involved in any kind of conspiratorial effort culminating in the president's impeachment. Nevertheless, the American public, which has little insight into its own government's activities in Paraguay, deserves to know more. What kind of an impact did Crescent lobbying have on official Washington policy? Perhaps, if journalists start to investigate, we can ascertain once and for all whether Paraguay's "quasi-coup" did indeed exude the viscous "smell of oil."